Good day ladies and gentlemen, and welcome to the Benchmark Electronics Incorporated Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host for today's Lisa Weeks, Vice President of Strategy and Investor Relations. You may begin.

Thank you Tania, and thanks everyone for joining us today for Benchmark’s third quarter 2016 earnings call. With me this afternoon, I have Paul Tufano, CEO and President; and Don Adam, CFO. Paul will provide introductory comments and Don will provide a detailed review of our third quarter financial results and fourth quarter outlook. We will conclude our call with a Q&A session. After the market closed today, we issued an earnings release highlighting our financial performance for the third quarter and we prepared a presentation that we will reference on this call. The press release and presentation are available online under the Investor Relations section of our website at www.bench.com. This call is being webcast live and a replay will be available online following the call. Please take a moment to review the forward-looking statements advised on Slide 2 in the presentation. During our call, we will discuss forward-looking information. As a reminder, any of today’s remarks that are not statements of historical fact are forward-looking statements, which involve risks and uncertainties described in our press releases and SEC filings. Actual results may differ materially from these statements and Benchmark undertakes no obligation to update any forward-looking statements. The Company has provided a reconciliation of our GAAP to non-GAAP measures in the earnings release, as well as in the Appendix of the presentation. I will now turn the call over to our CEO, Paul Tufano.

Thank you Lisa. It's a great pleasure to speak with all of your today. Over the past four weeks since being appointed as CEO of Benchmark, I have spent my time visiting our sites to better understand our capabilities and to get to know our employees, and to-date I have visited almost 6% of our network and I'll visit another 25% at the beginning of the year. I’m also meeting with our customers to get their honest assessment of how well we are doing and more importantly what can we do better. And I thought it would be useful to share with you some of mine initial observation. As a Board member, honest for me with our offerings, that seems some of our capabilities firsthand has been truly impressive. And I would like to share with some of those impressions. First off, we have a world class precision machining group that primarily services the semiconductor capital equipment industry, supporting frontend process [indiscernible]. We fabricate the business chambers, heated [indiscernible], showerheads and a variety of consumer products. The same business also has a very nice position in widening the machining of turbine blades for internal components of aircraft engines. A very, very solid operation and one which can be levered in the future. In defense, we have design manufacturing capabilities to the production and design of situational awareness systems for Army aviation as well as cockpit [indiscernible] for fighter aircraft. And we have very strong surveillance systems footprint in our delivery of information assurance product. In the medical space our design engineering solutions range from complex Cardio to Neurostimulation to dialysis application. And we have manufacturing and design capabilities for registered class three life sustaining products. We have strong capabilities in RF, in optical and in test, and what is interesting…

Thank you Paul, good afternoon to everyone. I will start on Slide 7, We will give a recap of our third quarter income statement. Completed the quarter revenue of $574 million, which was within our guidance, but below the midpoints primarily from Telco to products qualification delays, demand in the broadband and optical markets remain strong for these products which we expect to ship during the fourth quarter. During the third quarter, our non-GAAP operating margin improved modestly by 10 basis points to 4.3% on an improving mix even with a sequential quarterly decline in revenue. Our non-GAAP EPS of $0.36 was at the mid-point of our guidance of $0.33 to $0.38. Our GAAP results reflect an $8.3 million of pre-tax benefit from reversal of tax contingency due to the expiration of applicable statute limitations. This benefit was offset by 520,000 of restructuring expenses and 3 million of CEO transition expenses. The GAAP EPS for the quarter was $0.34. For the quarter, our ROIC was 8.6%, which is below our 12% long-term target. Now let’s turn to Slide 8 for our quarterly results by market sector. Industrial revenues were $217 million, up 10% year-over-year and up slightly from the second quarter. These results were slightly below our expectations related to the shipment timing of current rate of new program ramps. For medial revenues were $86 million and were down sequentially than in line with our expectations, medical was down 2% from last year and 7% from the second quarter. For testing instrumentation, revenues were $66 million which increased sequentially 9% and 13% year-over-year. Revenues were above third quarter expectations due to strong demand from cap equipment customers driven by mobility, the Internet of Things and memory and markets. In summary, our higher value markets represented 64% of our third quarter…

Thank you very much. First a question for Paul for strategy and then a clarification and question for Don on CFO. So Paul when you look at the strategy that laid out you clearly said you want to return to growth. I guess what are the couple of things that you think you can really change or improve or maybe have hindered Benchmark in the past, so we can kind of look for you to adjust those. And then Don on the CFO question you had mentioned some program delay ramps were those like yield issues within Benchmark or qualification on the customer side or economic impact to slow those down? Thank you gentlemen.

Okay Jim I'll take the first call. Clearly we have to grow as the top-line and we will step back and give you my assessment in efforts for leads of where are those opportunities to do that. Number one, clearly we've made investment in go-to-market resource. Those investments have to being to yield more results in terms of further bookings and target accounts in terms of where we go hunt and we go [indiscernible]. And more importantly, I think we've got a number of high quality assets in the companies which I talked about that are synergistic. And I'm not sure that we are synergistically selling all the capabilities within Benchmark. More importantly, I think that we also are not taking the full value of our network of sites into account as we are communicating with potential going forward. So we will look to those three areas to drive greater order intake that will manifest itself in revenues in the coming quarters.

Great, Don anything on the delays?

Yes, so from the delays that we had primarily a couple of issues on some test verification issues as well as some prior components issues primarily in the Telco and some of the industrial sectors. And those were both customer driven.

Excellent. Thanks so much for the details gentlemen. We appreciate it.

Thank you. And our next question comes from Steven Fox from Cross Research. Your line is now open.

Thanks, good afternoon. First question Paul just on some of the comments you just made. Can you just expand a little bit on what you mean by leveraging the full value of the network. What do you think is not being utilized as efficiently as it could be and how quickly do you think, you are able to sort of leverage those assets better? And then I have a couple of follow-up.

Sure. I mean if you think about Benchmark. We have almost 20 sites around the world each of which have greater capabilities. And look, my initial impression is that we sell more individual sites than we do the network itself, and what customers want today is how do you provide them capability to serve global needs. And so how do we make sure that we are leveraging the capabilities of all of our sites to give customer solutions that are aligned with our requirements as well as theirs. And I think we have opportunities in that area.

Great. That’s helpful. And then a couple of quick follow-up. First of all Paul can you just comment on the secure - it seems like you reference the secure acquisition as something that make sense strategically. I just would like you to address that specifically since there was an area of controversy as part of the proxy fight.

Look I have been [indiscernible] secure the first week I was in the job, and I spent over a day with the secure team, going through the product versus technology. And I think they provide us substantial opportunity going forward. They have extensive capability in the design of solution that have highly dense network protocols, they have encryption that are recognized and that are in essence key components of our military complex especially the connected battlefield. Now, when I look at those capabilities and I look at the problems that they are addressing. I see immediate applications in commercial spaces. And I think that one of our opportunities is to understand how could we take some of those technology building blocks and look to commercialize them in areas that today we’re supporting some of our customers on. And I think that there is a huge opportunity here, I’m really excited by it, I love secure when I visited them tremendously energized. I mean they have some great stuff, but you know what you do with the military, you look at three to four years cycles. My challenge to them was how we take some of these technologies and increase the cycle time but in the commercial application. And I’ll give you an example, because I think you want to understand this. They do a lot with sensors and communication protocols on sensors. And that’s a hot topic and as you move into the internet of things especially in industrial controls and industrial application. And if you look at one of our target growth market its industrial controls. So I think there is a fair amount of opportunity to say what do we have that’s been primarily a defense related activity and how can we broaden that into the more commercial aspects. So that’s just one example.

That’s really helpful. And then last question just really quickly. Don maybe based on the guidance, you just provided for the fourth quarter. Can you give sort of range or your free cash flow expectations as you improve your working capital turns for just quarter coming up?

I mean for the quarter with 75 days, I would say $35 million to $45 million.

Great. Thank you very much.

Thank you. And our next question will come from Mitch Steve from RBC. Your line is now open.

Hey guys thanks for taking my question. First quick one, so on the telecom side, it's sounds like some of the demand pushed out in the December quarter, if any way you guys help us quantify how much that was and what the impact was during the quarter?

Well I think for the quarter we were down 6%, 7% from Q3 results, so if you look at where our guidance is for the fourth quarter Mitch, we are largely recovering where we thought we were going to be.

Got it. And secondly, on that recovery for the telecom space, is that essentially you guys have built the product, is it simply shifting or is it delay as in a quarter, just going to be a multi quarter push out?

I think was associated with Jim's question in terms of some of the with the rise that we got on the testing side and the component side.

Got it.

We expect to ship those during the fourth quarter.

Make sense. And then last one just on the capital allocation where there was another hot button topic I guess with engaged involved beyond the working capital. So is there any change or update there just given that you had about $44 million in cash in the U.S. any idea if you going to raise that or potentially take the repatriation tax?

Look, we have 37 quarters of consecutive share buyback and we have an ongoing ASR program, let’s be honest. We will continue our share buyback programs. And we will always be open to effective use of capital in terms of allocation.

Got it. Thank you.

Thank you. And our next question will come from Herve Francois from B.Riley. Your line is now open.

Hi guys, can you hear me?

Yes, [indiscernible] a little thin.

Yes, sorry about that.

No problem.

Is that better?

Yes.

Okay sorry about that. Yes, so I was going to ask in regards to some of the new bookings that you mentioned. Can you talk about which kind of sectors are that they were in. I mean you did say that really three quarters of them came within your high value markets. Can you drilled down a little bit more and kind of give us what markets some of those you are in? And then when are you going to see the earliest ramping up some of those booking that you announced this evening? Thanks.

Let me give you the breakdown, it's on the computing, out of the 49 program we had five in computing, Telco was seven, Industrial Controls was 23, Medical was 10, and Test and Instrumentation was four.

Got you. And is some of that ramping going to start here in the fourth quarter?

No. those are typically - you are probably six to nine months out before they start ramping.

Got it, understood. And then just on the operating margin range that you gave for the quarter, I think you said 4.4% to 4.8%, is that really the functional mix in regards to whether it does come up to 4.4% for the December quarter versus the 4.8%, what would you say is the main driver between that 40 bits swing there?

Well it's going to be a will be a combination I think even at the low end we are at 590 which is above the results that we just had. So it would be a combination of certainly mix as well as volume, which is going to drive the margins.

Got it. Thanks very much. Yes, that's all I had. Thank you.

Thank you. [Operator Instructions] And our next question comes from Sean Hannan from Needham & Company. Your line is now open.

Great thought, thanks very much. First question here in terms of the win environment and taking on these new projects in a lot of these the longer cycle markets. Are you feeling that the exposure you have to competitors is changing much. Are you seeing some of the other traditional EMS names either on an increasing or decreasing basis? How does that landscape look today, because obviously it's been a very common theme for a lot of the players within this space, there is a lot of reason to be there participate and win.

So Sean let me take a stab at this right. I think if you looked at the presentations with all of our competitors, you will see that they have targets for some of the same market leader. Test and instrumentation, medical and alike. So, I think that everyone has designs on these spaces. I think the key to your ability to win comes down to a couple of factors. First is you are your capabilities that you bring to the table. Especially design capabilities and test capabilities. I think second it's the relative size of the account and whether or not they will get the same level of treatment as they would everybody else. And here I think we have an advantage. The Benchmark [23 - $244] (Ph) billion. These kind of customers with these profiles are top of mind for us. To some of the other competitors who are significantly larger than we are I think that's the concern. In a previous life messages and previous one I was a buyer of these services, and the quantities we were buying were massively different than what we are talking about these accounts, and I was able to get my share. I'm not sure that if I was at size of some of these accounts we are talking about that I would have gotten the same margin with some of our competitors. And so for us I think that we have to do to compete effectively let's feet on the following things. Obviously, the quality of our service and the quality products we produce, our ability to be responsive in order lead time, our proactive nature inherent in terms of helping the customers with design services and capability and making customers feel that they are top of mind. And I think if we do that we can speak very successfully against any of our EMS competitors.

That’s helpful. I think that following on to that it would seem that logic dictates given the long cycles for lot of these programs and the stickiness of those relationships. Any partner with the fact that Benchmark specifically within medical and industrial, test and instrumentation. The trajectory of the last many quarters of those win rates have been quite pronounced. And consequently, it seems that the business should have an incremental layering effect year-after-year due to some of those tales and due to the incremental wins and you guys are lining up for a better longer term growth factor than we’ve seen out of Benchmark in the past. Is that larger cold water?

It does, it does. And I would say that we need to get our order intake up a little more, so that we could have extra juice on the growth.

Okay.

That’s right, because you prime in the pump right. So it may take two to three quarters for the order to start to materialize in the revenue. So more that you can order intake up you get that accelerate effect and revenue beyond the line.

Great. Then more of, I guess an accounting question here for Don. From an SG&A standpoint, it seems like you guys did a pretty good job in the quarter and obviously you have been taking some charges and restructuring. What should we expect to continue to see in terms of the contributions to your margin expansion either coming as a consequence or leveraging your OpEx versus what you get on the margin for a changing mix as you continue to progress forward?

Well I think on the OpEx, I would expect that to remain flattish. Certainly, we will get - when we start to see some revenue growth will get certainly some leverage off of the OpEx side. So it’s going to be a combination, but I think about OpEx should be in the flattish environment.

From a dollar spend standpoint?

Correct.

Yes okay. Great. Thanks for taking my questions here.

Thank you.

Thank you [Operator Instructions] and this does conclude our question-and-answer session. I would now like to turn the call back over to Lisa Weeks for any further remarks.

Yes. Thank you all for attending today. We will be available for any follow-up questions that you may have. And have a great afternoon.

Ladies and gentlemen thank you for participating in today’s conference. This conclude today’s program. You may all disconnect. Everyone have a great day.